The Signaling Effect of Dividends on The Market & Financial Performance of Listed Companies in Sri Lanka

Abstract

This study aims to examine the Signaling effect of dividends on the financials and market performance of listed companies in Sri Lanka. This study facilitates information regarding current and future performances, such as dividend practices, future growth projections and insights into market behaviour for stakeholders. The total population was identified as the companies listed in the CSE, which was approximately 316 firms. The sample of the study was 102 companies listed between the years 2015 to 2019. Systematic sampling was used to select the sample. In analysis, panel regression was used as the data analysis technique. STATA version 16 Statistical Software Package was used in conducting the data analysis. Random effect regression model was recommended by the hausman test. The results concluded that dividend decisions were impacted insignificantly on subsequent market performance. Dividend per share was positively and significantly impacted on both return on assets and return on equity. Dividend pay-out ratio was positively and insignificantly impacted on return on equity and also negatively and insignificantly impacted by return on assets. The current study recommends that further research could be done by focusing on dividend announcement dates and calculating the subsequent market performance, three to five months following the dividend announcement date.

The Relationship Between Dividend Policy and Firm Financial Performance: Empirical Study of Non-Financial Listed Companies in Sri Lanka

“…Findings support the idea that the dividend payout is a non-relevant fact that affects financial performance. The results are similar to Thafani and Abdullah (2014) and Karunarathne et al (2021) found that DPR has a statistically insignificant relationship with financial performance. That indicates profitability has not increased with the dividend increase of the listed manufacturing, food, beverage & tobacco companies in Sri Lanka.…”

“…The study aimed to establish the relationship between dividend policy and firm financial performance in manufacturing, food, beverage, and tobacco companies. Employing methods consistent with prior research (Amindu 2007;Karunarathne et al 2021;Thafani & Abdullah 2014), descriptive statistics, correlation, and panel regression were conducted. However, the first hypothesis, indicating no statistically significant connection between the Dividend Payout Ratio (DPR) and company financial performance, was rejected as the p-value of regression analysis was less than 0.05.…”

“…His study concluded that managers could build value by increasing dividends to an optimal amount; nevertheless, after controlling for other firm-specific variables, DPR has a significant and beneficial impact on the firm value. Karunarathne et al (2021) took 5 years of data with 510 observations of companies listed in the CSE and said that dividend decisions are insignificantly impacted on the subsequent market performance, but DPR has a significant impact on current financial performance. In their study, the results of panel regression also present an insignificant impact on growth and market performance in Sri Lanka.…”

“…Over the last five years, Sri Lankan companies have faced many issues when they are making dividend decisions. In Sri Lanka, there are some empirical studies have been done on this area such as, Ajanthan (2013), Velnampy et al (2014), Paviththira (2015), Karunarathne et al (2021), Wijekoon and Senevirathne (2019) and Wijayasiri et al (2023). Among those studies, a few studies focus on manufacturing, food, beverage, and tobacco companies.…”